Updated from 11:53 a.m. EDT

Delta Air Lines ( DAL ) said Monday that its loss widened in the second quarter, but results were complicated by massive noncash charges, first announced a week ago.

The carrier reported a net loss of $1.96 billion, or $15.79 a share, vs. a profit of $184 million, or $1.40 a share, a year ago.

Excluding charges, the company lost $312 million, or $2.55 a share, vs. a net loss of $237 million, or $1.95 a share, in the year-ago period.

Operating revenue rose to $3.96 billion from $3.49 billion a year ago.

Analysts were expecting a loss of $265.8 million, or $2.46 a share, on revenue of $3.82 billion.

In reaction, shares initially fell sharply on the news, but then shot higher. Recently, they were up 40 cents, or 7.3%, to $5.90.

"Delta must create a cost structure that corresponds to the revenue base our network can deliver," the company said in a statement. "Cost savings must be combined with a competitive employment cost structure, reduced debt and additional cost reductions in order to position Delta for long-term success."

Last week the struggling Atlanta-based carrier said it would record significant noncash charges totaling $1.65 billion for the quarter. The bulk of them, $1.53 billion worth, are related to deferred income taxes. Another $117 million is for a settlement related to the company's defined benefit pension plan for pilots because of higher-than-average retirements.

Delta is struggling to cut costs and is trying to renegotiate an existing contract with its pilots union. The company has warned that it can not rule out a Chapter 11 bankruptcy filing if it proves unable to implement radical cost-cutting measures. Delta and other major carriers such as Continental Airlines ( CAL ) have also been hurt by high fuel costs as crude oil prices hover around $40 a barrel. The carrier has also seen a spate of senior executives leave the company in recent months.

Delta is the first major legacy carrier to report earnings for the April-June period, which has been a surprisingly difficult one for the industry. Southwest Airlines ( LUV ) surprised analysts by missing earnings forecasts, even though its profit rose during the period. The industry has rushed to boost capacity, but carriers have slashed fares on the most competitive routes, eroding profits, ahead of the peak summer season.

Continental reports earnings Tuesday, while Northwest Airlines' ( NWAC ) results are due out Wednesday. Another low-cost carrier, JetBlue ( JBLU ), reports Thursday.

In April, the carrier announced a first-quarter net loss of $383 million, or $3.12 a share, having warned about the results in March. The company's first-quarter loss was deeper than the loss of $3.05 a share expected by analysts. Nonetheless, the quarter was an improvement from a year ago, when Delta had a net loss of $466 million, or $3.81 a share. Revenue came in at $3.29 billion, up 4.3% from last year, but shy of the $3.36 billion that analysts expected, on average.

In June, CEO Gerald Grinstein said the carrier couldn't survive in its current form, describing the airline's condition as "extremely serious," while repeating management's position that a Chapter 11 bankruptcy protection filing was not out of the question.

In its statement Monday, the airline said: "Delta is in the process of finalizing the strategic reassessment of its business. The objective of this project is to develop and implement a comprehensive and competitive business strategy that addresses the airline industry environment and positions Delta to achieve long-term sustained success. Management is planning to make recommendations on the review to the Board of Directors later this summer."

At June 30, 2004, Delta said it had $2.3 billion in cash, of which $2.0 billion was unrestricted. The airline had positive cash flow from operations of $57 million.

Last week, Citigroup Smith Barney analyst Daniel McKenzie cut his price target on the carrier, citing the government's decision to deny United Airlines, unit of UAL ( UALAQ.OB), a loan guarantee.

"We think the risk of Delta filing for Chapter 11 has substantially increased, particularly with fuel continuing to hover near peak levels," wrote McKenzie in his research note at the time. "Despite encouraging news from the Delta pilots union on concessions, we think labor uncertainty increases for Delta following the UAL loan guarantee denial." (Citigroup Smith Barney does and seeks to do business with the companies covered in its research reports.)

"We're concerned that the labor battle with Delta's pilots will prove too difficult," said McKenzie, adding later, "Delta is now seeking $1 billion in savings from the pilots, vs. management's previous request for savings of approximately $850 million, according to our labor sources ... Ultimately, we think the sacrifice asked of the pilots will be too tough a pill to swallow."

Prior to Delta's second-quarter report, analysts were forecasting a net loss of $1.23 billion, or $11.06 a share, on revenue of $14.52 billion for full-year 2004.